Firm Investment and Balance-Sheet Problems in Japan

Toshitaka Sekine

No 1999/111, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates whether balance-sheet conditions of firms and their main banks matter for firm investment behavior using dynamic corporate panel data in Japan for the period 1985-95. It finds that smaller non-bond issuing firms were facing liquidity constraints; these firms’ balance-sheet conditions (the debt asset ratios) affected their investment from the midst of the bubble era by influencing main banks’ lending to them; and the deterioration of their main banks’ balance-sheet conditions constrained these firms’ investment from about 1993. These findings highlight the potential macroeconomic impact and importance of the credit channel of monetary policy, and support the case of a credit crunch facing small Japanese firms during this period.

Keywords: WP; firm; balance-sheet condition; investment behavior; investment; credit channel; dynamic panel data; Japan; issuing firm; balance-sheet variable; over-the-counter market firm; Bonds; Nonperforming loans; Credit; Capital adequacy requirements; Bank credit (search for similar items in EconPapers)
Pages: 32
Date: 1999-08-01
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Citations: View citations in EconPapers (23)

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